Directorate for Financial and Enterprise Affairs SWITZERLAND: PHASE 2 FOLLOW-UP REPORT ON THE IMPLEMENTATION OF THE PHASE 2 RECOMMENDATIONS APPLICATION OF THE CONVENTION ON COMBATING BRIBERY OF FOREIGN PUBLIC OFFICIALS IN INTERNATIONAL BUSINESS TRANSACTIONS AND THE 1997 REVISED RECOMMENDATION ON COMBATING BRIBERY IN INTERNATIONAL BUSINESS TRANSACTIONS This report was approved and adopted by the Working Group on Bribery in International Business Transactions on 2 May 2007. TABLE OF CONTENTS SUMMARY AND CONCLUSIONS BY THE WORKING GROUP ON BRIBERY .................................. 3 WRITTEN FOLLOW-UP TO PHASE 2 REPORT ....................................................................................... 6 2 SUMMARY AND CONCLUSIONS BY THE WORKING GROUP ON BRIBERY a. Summary of findings 1. At the Working Group’s meeting in March 2007, Switzerland presented its written follow-up report, outlining its response to the recommendations that the Working Group on Bribery made during the phase 2 examination in 2004. The Working Group welcomed the information provided by the Swiss authorities in the course of this exercise and recognized Switzerland’s efforts to implement the recommendations made by the Working Group. The Working Group noted, however, that most of the recommendations that the Group made during the phase 2 examination have not yet been fully implemented. 2. The Group acknowledged Switzerland’s efforts to raise awareness about the Convention and the foreign bribery offence, called for in Recommendations 1a and 1b. The Swiss authorities explained that they endeavoured to maintain and to strengthen the momentum that the phase 2 examination itself had triggered as Switzerland understood awareness raising as a long-term undertaking that was conducted in cooperation with various partners. These partners included the federal authorities, the 26 Cantons, and professional associations, notably those involved in export and investment promotion, and Transparency International Switzerland. The Working Group considers that further awareness raising efforts are required to fully implement the two recommendations that address this matter; these measures should target specifically small and medium-sized enterprises and authorities at cantonal level. 3. As a further preventive measure, the Working Group had called upon Switzerland, in the phase 2 evaluation, to enhance the transparency of corporate accounts and the independence of auditing bodies, and to encourage the Swiss Institute of Certified Accountants and Tax Consultants to amend the auditing standards (Recommendation 2a). Now, the Working Group agreed that the independence of auditing bodies will be strengthened by the comprehensive re-organisation of the institution of auditing once it has entered into force, likely on 1 January 2008, according to the Swiss authorities. 4. In turn, the Group noted that the transparency of company accounts has not yet been enhanced and that the auditing standards have not yet been amended. Switzerland explained that uniform accounting rules were being developed, and that they will be brought before Parliament in 2007. Switzerland further stated that the Swiss Institute of Certified Accountants and Tax Consultants is expected to amend its auditing standards as of the entry into force of the new auditing legislation (1 January 2008). 5. Three recommendations of the phase 2 report call upon Switzerland to consider establishing formal obligations to report indications of possible acts of foreign bribery to the competent judicial authorities. The phase 2 report notably suggested that Switzerland consider establishing such an obligation for federal authorities and public officials, and to encourage cantonal authorities to do the same at their level (Recommendation 3a). At federal level, the Swiss Government will prepare a respective proposal for submission to Parliament in 2008. The Government has also engaged in consultations on the matter with the Cantonal Governments since 2005. The Working Group found that through these efforts, Switzerland has fully implemented the Recommendation. 3 6. The Working Group’s phase 2 report had also recommended that Switzerland consider establishing a formal obligation for company auditors to report to prosecutorial authorities indications of possible acts of foreign bribery (Recommendation 3d). The considerations on the matter have not led Switzerland to include such an obligation into its new Auditing Law, but satisfy, in the eyes of the Working Group, the Recommendation made during the phase 2 examination. 7. Another recommendation addressed to Switzerland seeks to enhance the likelihood of detection of foreign bribery by the tax authorities by means of a circular that explains the nature and tax aspects of the foreign bribery offence; the recommendation also calls for a revision of the disclosure rules (Recommendation 3b). The Working Group considers that Switzerland has partly implemented this recommendation by preparing a draft circular that, according to the Swiss authorities, will also clarify disclosure rules. The Swiss authorities informed the Group that approval and subsequent dissemination of the circular were pending at the time of the written follow-up report in March 2007. 8. As a further measure to foster the detection of foreign bribery offences, the Working Group had recommended, in the phase 2 report in 2004, that Switzerland examine measures to ensure effective protection of whistleblowers, especially employees in the private sector (Recommendation 3c). In March 2006, the first chamber of Parliament mandated the Swiss Government to prepare a bill that addresses the protection of whistleblowers; the second chamber is expected to follow in June 2007. The Swiss Government will subsequently draft such a bill and will submit it to Parliament likely in 2008. The Working Group considers that through these steps Switzerland has partially implemented Recommendation 3c. 9. As a fifth measure to increase the likelihood that foreign bribery offences be detected in Switzerland, the Working Group recommended that the authorities raise awareness of supervisory authorities responsible for the fight against money laundering, so that these bodies resort to the full range of sanctions available to deter money laundering related to foreign bribery (Recommendation 3e). The Working Group noted that at the occasion of the review of the Financial Action Task Force in late 2005 the supervisory authorities were made aware of the panoply of sanctions provided for in the Anti-Money Laundering Act. In this context, Switzerland informed the Working Group that the consolidation of the supervisory bodies for banks and non-bank financial intermediaries to create a Federal Financial Market Supervisory Authority was underway. The Working Group hence considers that Switzerland has partly implemented the recommendation. 10. In its report on the phase 2 review of Switzerland, the Working Group noted that the possibilities for appeals with regard to mutual legal assistance requests tended to draw out procedures and hence recommended that these appeal processes be streamlined to bolster the effectiveness of the prosecution of foreign bribery offences (Recommendation 4a). The Group heard the explanations from Switzerland that cantonal appeals bodies had been dismantled and that appeals against initial rulings involving international mutual legal assistance were now handled by a single specialized body at the federal level. Further, a law adopted in June 2005 and in force since 1 January 2007 restricts appeals by setting additional conditions; the new rules also prescribes short delays, and appeals do not automatically have suspensive effect. The Working Group deems that Switzerland has, through these measures, partially implemented the recommendation and agrees that at the time of the follow-up report in March 2007 it was too early to assess the impact of these reforms on the effectiveness of the prosecution of foreign bribery offences. 11. Regarding the recommendation to consider whether enterprises convicted of bribing foreign public officials should be temporary or permanently disqualified from participating in public procurement contracts, and to consider a similar approach for export credits (Recommendation 4b), Switzerland explained that it had adopted measures as required by the 2006 Recommendation on Bribery and Officially Supported Export Credits. The Group agreed that this action met the requirement expressed in the 4 recommendation as far as export credits are concerned. As regards sanctions in the domain of public procurement, Switzerland explained that measures were still underway and that it was confident that this part of the recommendation will eventually be implemented. The Group concluded that Recommendation 4b has been partially implemented. b. Conclusions 12. Based on the findings of the Working Group with respect to Switzerland’s implementation of the phase 2 recommendations, the Working Group concluded that Switzerland had fully implemented recommendation 3a and 3d, and partially implemented the remaining eight recommendations the Working Group had made in the phase 2 review. 13. Noting that some of these measures that Switzerland has taken in response to the recommendations that the Working Group had made in the phase 2 review had not been finalized at the time of the written follow-up report, the Working Group invited Switzerland to report orally, two years after the written follow-up examination, i.e. by March